Equity
& Commodity
Equity
Equity is typically referred to as shareholder equity & also
known as shareholders' equity which represents the amount of money that would
be returned to a company’s shareholders if all of the assets were liquidated
and all of the company's debt was paid off.
Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar
terms) represents the equity of a company as divided among shareholders of common or preferred stock.
Negative shareholders' equity is often referred to as a shareholders' deficit.
An equity market is a market in which shares
are issued and traded, either through exchanges or over-the-counter markets.
Also known as the stock market, it is one of the most vital areas of a market
economy because it gives companies access to capital and investors a slice of
ownership in a company with the potential to realize gains based on its future
performance.
Trading in an Equity
Market
In the equity market, investors bid for stocks by offering a certain price, and sellers ask for a specific price. When these two prices match, a sale occurs. Often, there are many investors bidding on the same stock. When this occurs, the first investor to place the bid is the first to get the stock. Companies sell stocks in order to get capital to grow their businesses. When a company offers stocks on the market, it means the company is publicly traded, and each stock represents a piece of ownership. This appeal to investors, and when a company does well, its investors are rewarded as the value of their stocks rise. The risk comes when a company is not doing well, and it's stock value may fall.
1.Capital
Growth: Selling a share for more than you paid for it is
known as Capital Gain. This occurs when an individual experience a significant
rise in share prices and is one of the long term objectives of investing in
shares.
2.Dividends: A dividend is a cash reward given out to shareholders
as part of the profit made by the company at the end of each financial year.
The larger the units of the shareholdings one possesses, the more money one
receives.
3.Liquidity:
By nature, shares that are listed are a very liquid
product and can be bought and sold quickly over an exchange platform. No hassle
of involving a broker or transferee and at a relatively low cost as compared to
other financial products.
4.Shareholder
Benefits: Some listed shareholder companies from
different market sectors including entertainment, retail, hospitality, and
financial services offer lavish discounts to shareholders when they buy goods
or services from the companies or their affiliates. However, in most scenarios,
lots of shares need to be owned to qualify for such benefits.
Commodity
Commodity is an economic good or service that has full or
substantial fungibility: that is, the market treats
instances of the good as equivalent or nearly so with no regard to who produced them. The price of a commodity good is typically
determined as a function of its market as a whole: well-established physical commodities
have actively traded spot and derivative markets. The wide availability
of commodities typically leads to smaller profit margins and diminishes the importance of factors other than
price. Most commodities are raw materials, basic resources, agricultural, or mining products, such as iron ore, sugar, or grains like rice and wheat.
A commodity market is a physical or virtual marketplace for
buying, selling, and trading raw or primary products. There are currently about
50 major commodity markets worldwide that facilitate trade in approximately 100
primary commodities.
Many investors regard trading in commodities as risky. The
complexity and volatility of commodity markets deter people from investing
here. But a well-planned commodity investment can be beneficial for your
portfolio. It also offers a host of benefits.
1. Diversification: Commodities can
diversify a portfolio. Commodity returns usually have low or negative
correlations with the returns of other major asset classes. So often, when
bonds and stocks fall, commodities rise. Sometimes, there may not be any
connection between the returns at all. Factors that affect returns on stocks
and bonds, for example, do not affect returns on commodities in the same
manner.
2. Inflation protection: Inflation has a different impact on commodities than financial assets like stocks and bonds.
This is because inflation causes currency to depreciate. This erodes the real
value of financial assets like stocks and bonds. Commodities, however, maintain
their value and price even during high inflation.
3. Hedge against event risk: Events such as natural
disasters, wars, and economic crises can lead to the depreciation of an investor’s
assets. This is an ‘event risk’. Such events affect financial assets like
stocks and bonds negatively. They may also lead to a rise in the prices of certain
commodities.
4. Trading on lower margin: An investor in
commodity futures needs to deposit a certain amount as a margin with the
broker. The margin can be close to 5–10% of the total value of the contract.
This is much lower than the margin required for other asset classes. Thus, the
investor can take larger positions while investing less capital. This also
helps increase the potential for high profits.
5. High returns: Commodity markets are
volatile. They can experience huge swings in prices. For example, a war is a
major oil-producing country like Iraq can cause oil prices to shoot up. Smart
investors can take advantage of these price swings to make gains. Well-planned
commodity investments can provide higher returns than investments in other
assets.
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